Thursday, June 9, 2011

Stolt in enviable position to issue bonds and lower its cost of capital

Stolt Nielson is chemical tanker leader with a strong contract base, consistently good P+L results and moderate financial leverage. They recently tapped the bond market to fund expansion opportunities and raise general corporate funds. After a swap, this results in a low fixed-rate US Dollar obligation. How are beleaguered peers like Eitzen Chemical and Berlian Laju Tankers (BLT) under the weight of their heavy debt loads/ leasing obligations with high finance costs going to compete with Stolt?

The Oslo-listed chemical tanker company has placed NOK 1.6 bn (US$ 300 mio) of five-year senior unsecured bonds. These bonds, which will be listed on the Oslo Stock Exchange, carry a coupon of three-month NIBOR plus 4.75%. Stolt has converted them though a swap to a fixed-rate US Dollar obligation of 6,63%.

The chemical tanker sector has less tonnage overhang supply problems that most other shipping sectors. Demand is expected to outpace supply as long as global GDP grows by 3% or more. The IMF forecasts 4.4% growth for 2011. Supply side characterized by newbuilding delays and high entry barriers. On a base case scenario, this would call for a 2,6% increase in fleet utilization that could lead to a 20% rise in asset values.

The only negative aspect for Stolt is that due their heavy contract book, rate increases would lag in their P+L results until contract book roll-over and rate renewal.

Presently time charter rates are flat in the chemical tanker market with stainless Dwt 19.900 tonnage fixed at rates of US$ 12.500 for twelve months. This business climate continues to favor Stolt over its weaker peers in the sector like Eitzen and BLT, who have to absorb the high financing costs, live with the slim margins and hope for upturn.

Aside from its chemical tanker business, Stolt also has a very lucrative chemical storage business that has a higher return on assets than the shipping business and a stable long term secured cash flow that adds earnings stability.

Eitzen and BLT are totally dependent on the vagaries of chemical tanker market and are paying easily double the financing cost of Stolt on a much higher debt load.

Should there be an unexpected double dip recession, their lenders will be facing some very nasty losses. Further if their financial position deteriorates, then Stolt will pick up market share from their end-user customers worried about rising contract performance risk. Stolt would be in the enviable position of picking up their better assets at cut rate prices.

About Me

Innovative manager and skilled negotiator with nearly thirty years experience in
business, finance and law. Significant successes in business development, start-ups,
organizational development and crisis management. Ability to analyze effectively and
to address complex business situations that require scope and multitasking.
Specialties: New Business Building, Deal Structuring, Joint Ventures, Negotiation,
Marketing, Communications, and Corporate Finance.

History of Amalia Tankers and its Founder.

Diran Majarian was born in Princeton, New Jersey. He comes from a professional family. He attended Princeton Country Day School, growing up in this small university town. His secondary studies and undergraduate work was mainly on the US West Coast. He attended the Cate School near Santa Barbara, California where he graduated ‘cum laude’. He earned his BA from Reed College in Portland, Oregon in philosophy and sociology with his college freshman year at the University of Pennsylvania in Philadelphia.

Mr. Majarian’s graduate studies were in law and business administration. He attended the Cornell Law School in Ithaca, New York where he earned a JD with specialization in international affairs. At Cornell, he served on the ‘Cornell International Law Journal’. Later after initial work experience, he studied business administration at the University of Nice-Sophia Antipolis in Nice, France where he concentrated on general management and corporate finance.

Mr. Majarian has attended numerous professional seminars in the UK, Switzerland, Greece and elsewhere concerning the shipping and banking industries. He maintains close contact with major schools like Wharton, Harvard and IMD for continuing professional education opportunities. IMD invited him to attend the Lausanne Shipping forum and participate in their shipping and risk management seminar. The Wharton School at Penn accepted him to participate in their Advanced Management Program.

After finishing law school and successfully passing NY and NJ bar examinations, Mr. Majarian was attracted to the shipping business because it was international in scope and open competitive markets. He wanted to play an active role in commercial and financial matters.

Mr. Majarian started his shipping career in the Thenamaris Group in chartering in Piraeus, Greece. Stelios Papadimitriou (later President of the Alexander S. Onassis Foundation) interviewed him and offered him a position in Olympic Maritime S.A. in Monte Carlo. Olympic gave him exposure to all aspects of ship management and groomed him for a management position in the business. He was initially assigned to insurance management with Alain Bernard , who later became a board member of the Gard Club. Among other duties, he was responsible for all the charter party arbitrations and commercial litigation for the group. Meanwhile he studied business administration at the University of Nice. When his colleague Dimitris Anagnostopoulos (currently Senior Vice President ABM-Amro Global Shipping) left Olympic, Mr. Majarian was promoted to assistant financial manager.

He returned to Piraeus with Bank of America, where he worked with Alex Tourkolias, now the Deputy General Manager and Senior Corporate Credit Officer of National Bank of Greece, Nick Karellis, who is head of shipping in the Greek market for HSBC Bank and John Platsidakis , who is General Manager of the Angelicoussis Group. While at BofA, he handled major shipping accounts notably Aristides Alafouzos (Glafki), Loucas Hadjioannou (Troodos), George Livanos (Ceres), and Hadjuelefteriades (Eletson).

He left Bank of America to start-up and develop several shipping businesses. The first business was Adriatic Tankers, where he established the business plan, arranged the initial financing, and assisted in setting up the operations. Whilst the company grew to ten vessels in a very short time, a divergence of views amongst the partners led to the end of this relationship. At this juncture, Mr. Majarian became active in the European Chemical Tanker Organization and the parcel chemical business. He then worked with Arsay Shipping in Turkey and assisted in the development of a fleet of stainless chemical tankers, some on time-charters, some on COA’s with SABIC/ Iranian government. Recently, major Israeli-controlled interests acquired this business and they have created a common chemical tanker pool with Gadot Chemical Tankers: Chem-Tankers. This led to co-operation with Gadot Chemical Tankers - Israel. Gadot is an integrated company with production, distribution, transportation and storage of chemicals, including a Greek distribution subsidiary Chyma S.A., which is a major force in the local Greek solvents market.

Mr. Majarian built a ship operating company with their last owned vessel at the time on the basis of leveraged buy-out with their continuing participation. This involved building an organization with high quality technical engineering and ship management capabilities. He trained and developed a new crew of high standards, creating a labor pool of over fifty well-qualified seamen on an in-house basis. He upgraded the vessel, which had a lot of technical challenges both with the complex machinery and structurally with the double hull and stainless steel cargo tanks. This entailed some major repair projects. He acquired approvals carried cargoes for major chemical companies like Dow and ICI as well as oil companies like Exxon, Mobil, Shell, BP and Total. He initiated one of the first ISM systems in Piraeus to ensure quality standards.

This business involved the regional parcel chemical trade between the Northern Europe and the Mediterranean with two to six intermediate ports. Base cargoes northwards were inorganic heavy chemicals like white phosphoric acid, and calcium bromide and aromatic petrochemicals like benzene, xylene. Base cargoes southwards were a wide variety of petrochemicals like acrylonitrile, ethylene dichoride, ethylene dibromide, etc. - usually 10 or more parcels. This is a major regional route with competitors like the Stolt Inter-European Service, United Seatrans Chempool and Vopack. During these years, Mr. Majarian developed a lot of respect in the chemical parcel industry as a serious and diligent operator with an excellent safety and operating record.

His reputation as a corporate ‘developer’ and ‘trouble-shooter’ grew during this period to the extent that the well-known Swiss executive search firm Egon Zehnder International approached him on an assignment with the Greek Government for CEO in the privatization plans for Olympic Airlines, which was short-lived with the fall of the government government and opposition to privatization.

In the last few years, Mr. Majarian has had a keen interest to start a new operation in parcel chemicals. He established Amalia Tankers Inc. as a company to develop joint ventures particularly in the chemical parcel tanker business. He maintains good relations with major operators.

Lately he has been heavily involved with the US investment banking community and major private equity investors. In 2005, he did a private equity road show in New York, working with Hamish Norton then at Bear Stearns on a project involving a package of chemical tankers operating in a major chemical tanker pool. Recently he gave a seminar in London to a select group of institutional investors on the impact of the global financial crisis on the shipping industry.

He believes strongly in certain business principles:

1. Focusing on opportunities in promising markets with first-class business partners and clear business guidelines.

2. Building a strong organization with teamwork and professionalism.

3. Proper financial structuring and good capitalization.

4. Corporate organization with transparency and accountability.

5. Meticulous technical vessel management with qualified seafarers and shore staff with emphasis on safety and quality execution with charterers.

6. Creating value in the business by making strategic acquisitions, expanding the commercial network and offering quality transport services.